On “Format of Expert Evidence of Economic Loss of Damages”

This article was originally published in the spring 1999 issue of the Expert Witness.

The Issue

Justice M. Bielby has invited comment concerning a proposed set of guidelines which deal with the presentation of expert evidence at trial. These guidelines, which were drafted by the Civil Practice & Procedure Committee of the Court of Queen’s Bench, attempt to ensure that the court receives enough information to permit it to calculate general damages in those cases in which it rejects the assumptions made by both sides to the dispute. The purpose of this article is to provide comment on these guidelines – which the Committee entitled “Format of Expert Evidence of Economic Loss of Damages” – from the point of view of an economist.

In a memorandum dated January 20, 1999, Justice Bielby offered the extreme example in which the plaintiff’s expert has been instructed to assume that the accident had left the plaintiff unable to work again; whereas the defendant’s expert has been instructed to assume that the plaintiff would not have worked even if the accident had not occurred. Thus, the plaintiff’s expert, in good faith, testifies that the plaintiff has lost, say, $800,000 of potential earnings; whereas the defendant’s expert, in equally good faith, testifies that the plaintiff has lost nothing.

This type of conflicting evidence does not create concerns for the court if there is a finding of fact that one or the other of these two extremes is correct. In that case, the court has sufficient evidence on which to base its calculation of damages.

When the court determines that the facts lie somewhere between the extremes offered by the two parties, however, the court may be left with little expert evidence on which to base its decision.

Assume, for example, that the plaintiff’s expert had been instructed that counsel would show that the plaintiff would have become an oil rig worker had the accident not occurred. The court, however, accepts the defendant’s argument that pre-existing disabilities would have prevented the plaintiff from entering such a physically demanding occupation; but rejects the defendant’s argument that the plaintiff had been incapable of earning any income at all.

Now, the only evidence available to the court is that the plaintiff’s damages lie somewhere between $0 and $800,000. The court has little or no information concerning what occupation the plaintiff could have entered; and even if it had received such information, say from a vocational psychologist, it has no evidence concerning the income which could have been earned in that alternative occupation.

The Proposed Guidelines

The guidelines suggested by the Civil Practice & Procedure Committee are designed to avoid leaving the court in this awkward position. In summary, these guidelines are:

The expert’s report must list each of the factors upon which findings of fact must be made; identify, for each such factor, the assumption which the expert has chosen to make concerning that factor; and provide the reasons for making each such assumption. (For example, if the expert suggests that it is important to determine what the plaintiff’s level of unemployment would have been, the expert must also report the assumption which has been made with respect to that level and must explain why that particular level has been chosen).

In any rebuttal report, the expert must expressly identify all of the factors employed by the other expert with which he or she disagrees; and must provide reasons for that disagreement.

If the testimony of the expert(s) is insufficient to allow the court to determine the set of damages, based on that court’s findings of fact, those findings may be remitted to any expert for calculation of the damages. (In such a case, all parties have the right to be heard concerning the accuracy of the expert’s calculations).

Commentary

The goal of the Procedure Committee appears to be to ensure that the court is provided with expert testimony which is sufficient to allow it to choose from any one of a number of possible combinations of findings of fact. If so, I believe that the proposed guidelines will not achieve their desired results.

The first proposal will not change experts’ testimonies for two reasons. First, it has been my experience, in well over 2,000 personal injury and fatal accident actions, that the actions “directed” by the first guideline are already followed by virtually all expert economists in Western Canada. Hence, the guideline simply directs experts to continue doing what they have been doing all along.

Second, even if an expert was to follow the first guideline, the Committee’s goal would not be achieved. In the example developed by the Committee, the differences between the experts did not arise from some disagreement between them concerning the “facts”. It arose from differences in the instructions which they were provided by counsel. For example, assume that one expert is told that plaintiff’s counsel will prove that the plaintiff would have worked on the oil rigs and the other is told that defendant’s counsel will prove that the plaintiff would not have worked at all. In that case, the first guideline proposed by the Committee will have no influence on the opinions and assumptions employed by either of them. Hence, the problem identified by the Committee will not be resolved.

Equally, the second guideline will simply result in the two experts reporting that they had been asked to employ mutually inconsistent assumptions. The experts, however, will be unable to resolve those inconsistencies. Hence, once again, the guidelines will offer them no incentive to provide evidence concerning “compromise” outcomes.

The third guideline encounters the drawback that it offers no incentive for the experts to modify their testimony in court. It is strictly a method for dealing with the problems contemplated by the Committee ex post. I think all would agree that it would be preferable to find some way of altering expert testimony at, or prior to trial. Not only would that simplify the court’s role in calculating damages, it would also increase the probability that cases would be settled before reaching the trial stage.

A Modest Proposal

It is my observation that most inconsistencies between economists arise from differences in the “facts” which have been presented to them. If this contention is accepted, then the solution is to find a method by which those differences can be resolved. I can think of two possibilities:

First, a pre-trial conference could be held to determine whether differences between the economists’ calculations were based on inconsistent understandings of the “facts”. If so, judicial mediation or a “mini trial” could be employed to resolve those inconsistencies.

Second, if it became apparent, at trial, that the parties disagreed concerning certain important facts, both economists could be asked to delay their testimony until the end of the trial. By that time, the testimony of the lay and medical witnesses will often have cast sufficient light on the unresolved factual issues that the economists will be able to make their calculations on the basis of largely similar assumptions.

Or, failing that, the court could, prior to the entering of the economists’ evidence, rule on the findings of fact. With perhaps a day or two delay, the economists could recalculate the losses bases on those findings and enter their calculations as “examinable” testimony, (rather than as written reports, as envisioned by the Committee).

Use of a “Multiplier”

An alternative approach would be to have the economists provide a sufficiently broad set of “multipliers” that most findings of fact could be accommodated within them. Multipliers arise in the following way: Assume that, for a given set of assumptions concerning the discount rate and the plaintiff’s starting salary, current age, rate of growth of earnings, and retirement age it is found that the present discounted value of his future earnings stream is $400,000. Assume also that the starting salary which has been assumed is $20,000. If all other assumptions could be held constant, it is readily seen that if the plaintiff’s starting salary was to increase by 50 percent, to $30,000, the present value of his lifetime earnings would also increase by 50 percent, to $600,000. Similarly, if the other assumptions were to remain unchanged, but his starting salary was to decrease by 25 percent, his lifetime earnings would also decrease by 25 percent.

An alternative method of representing this same set of facts would be to recognize that, in the case cited above, the present value of the plaintiff’s lifetime earnings was 20 times his salary. This figure is referred to as the “multiplier”. It is often provided to the court when the facts concerning rate of growth of earnings, discount rate, and age of retirement are not in dispute, but there is some disagreement concerning the plaintiff’s starting salary. If the court is told that the relevant multiplier is, say, 20, then, once the starting salary has been determined, the court can readily calculate the present value of the loss of earnings. For example, if the court in this case was to decide that the plaintiff’s starting salary would have been $25,000, it would be able to determine that the damages were $500,000 (= 20 x $25,000).

My suggestion is that the experts be asked to provide a different multiplier for each plausible set of assumptions concerning rates of growth of earnings, discount rate, and retirement age. Then, the only finding of fact which the court would have to make, before it could determine the appropriate level of damages, would be the plaintiff’s starting salary.

The determination of this set of multipliers will be less onerous than it may sound for two reasons. First, experts rarely differ significantly with respect to the discount rate or the plaintiff’s retirement age. Thus, multipliers would have to be provided only for a selection of growth rates of earnings.

Second, growth rates of earnings tend to be associated very closely to education level. A comprehensive set of multipliers can be provided simply by calculating a multiplier for each of four education levels: university, college or trade school, high school, and less than high school. In the table on page 13, I provide sample multipliers for each of these education levels, first for a 25 year old male and a second for a 45 year-old male. What is readily seen is that three such multipliers would generally be adequate to cover most possible scenarios for a 25 year-old: roughly 28.5 for non-high school graduates, 31.0 for high school and university graduates, and 37.0 for university graduates. Furthermore, because growth rates of earnings tend to approach zero for all groups in later years, one multiplier – approximately 12.5 – may be sufficient for most 45 year-olds. Only in unusual cases, such as those in which the plaintiff might have been able to obtain a post-graduate degree, would more than three multipliers be required.

Sample Multipliers

This is not to say that provision of such a set of multipliers would resolve all of the problems contemplated by the Committee. Disputes may still occur with respect to the plaintiff’s starting salary, fringe benefit levels, labour force participation, retirement age, or unemployment rate; and disputes may also occur with respect to the discount rate.

Nevertheless, if a complete set of multipliers was provided, and if the courts were properly trained in the use of those multipliers, I believe that many of the Committee’s concerns could be mitigated.

Christopher Bruce is the President of Economica and a Professor of Economics at the University of Calgary. He is also the author of Assessment of Personal Injury Damages (Butterworths, 2004).